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A person that (in)directly holds shares in a Dutch company could qualify as a director and major shareholder (‘DMS’) and be bound to minimal salary requirements. This system is being referred to as customary salary scheme (gebruikelijk loon regeling).

Under Dutch law more than one definition of DMS exists. For the customary salary scheme, article 12 of the Dutch Wage tax Act, the substantial interest criterium is being applied. In case a person or his/her spouse hold 5% or more of the shares of a company, this person will qualify as DMS for customary salary purposes. Despite the use of the name DMS, please note that it is not necessary that this person holds a director’s position.

The main rule is that the salary paid to DMS will be deemed to be at least € 45,000 per year (2019). The salary can also not be lower than the best paid employee of the company or any affiliated body.

A lower salary will be possible under the condition of burden of proof on the taxable person. If a lower salary is normal practice in a similar job position, it is possible to proceed on the basis of such salary. Thereby not deviating with more than 25% downwards from this benchmarked salary.

In situations where the customary salary shall be EUR 5,000 per year or lower, art 12 of the Dutch Wage tax Act shall not apply. This rule exempts from the requirement for a mandatory salary administration.

In case of a bad financial position of the company, it is possible to request a lower salary to the tax inspector. When a managing director does not want to have the height of the DMS salary approved by a the Dutch tax authorities, it is advisable to have the salary amount substantiated by means of a benchmark report. The tax inspector could correct this at a later stage whereby the burden of proof will be with the tax inspector. Please note that a reportable position (pleitbaar standpunt) should not lead to a fine.

For a large number of the DMS that are working in a Dutch company and residing abroad the minimal salary requirements do not apply. This is because the Netherlands has concluded many tax treaties which limit the minimal salary requirements to local residents. The Dutch Supreme Court has ruled that the state of residence of the DMS must have explicitly agreed to the application of the regulation. However, the practice is that the regulation has not been discussed during the tax treaty negotiations.